TaxTMI 
TaxTMI 
2019 (8) TMI 923
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....l loss of Rs. 69.36 crores on sale of compulsorily convertible debentures (CCD in short) on the ground that it is not bonafide in nature and is more of a colorable device, in the facts and circumstances of the case. 3. The brief facts of this issue are that the assessee is a public limited company engaged in the business of investment in shares and securities of other companies. The assessee had filed its return of income for the Asst Year 2012-13 on 30.9.2012 declaring total loss of Rs. 3,99,98,822/-. The ld AO observed in his order that perusal of details filed on record by the assessee showed that assessee had sold scrip of M/s Imperial Consultants & Sec. Pvt Ltd to M/s Kroner Investments Ltd which resulted in a short term capital loss of Rs. 69,36,00,000/-. The assessee was asked to furnish the basis of valuation for cost price and selling price . The assessee furnished the vauation report for the selling price whereby fair value of CCD of Rs. 85/- has been denoted at Rs. 61.88 by taking 15% for illiquid nature of CCD. The ld AO observed that CCD has been purchased from a related party on 31.3.2011 and sold within a short span of 7 months with a loss of around 30% and it loo....
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....chased the CCDs at the face value of Rs. 85/- per CCD itself without providing for any discount on the face value in order to consider the impact of the illiquid nature of the CCD on its fair market value. On the other hand, the appellant applied a discount of 15% towards illiquid nature of the CCDs for arriving at the fair market value of the CCDs for the purpose of determining the sale price of Rs. 61.88/- per CCD at the time of their sale. 4) The appellant failed to furnish any plausible commercial or compelling reasons for its decision to sell the CCDs within seven months of purchasing them at a substantial loss of Rs. 69.36 Crores. 5) The transaction of sale of CCDs resulting in such huge loss took place on 16.10.2011, which was just two days prior to the transaction of sale of equity shares and preference shares of ISL carried out on 13.10.2011 which resulted in huge Long Term Capital Gains of Rs. 1012.23 Crores. The motive of generating a capital loss for setting off the huge capital gains that arose from sale of equity shares and preference shares of ISL is evident from this fact and other attendant facts stated above. Though, the appellant claimed availab....
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.....3.2011. The assessee sold these CCDs to Kroner Investment Ltd (holding company of assessee) on 16.10.2011 at Rs. 61.88 per debenture. This transaction resulted in a loss of Rs. 69.36 crores to the assessee and assessee claimed the same as short term capital loss as the debentures were held by the assessee for a period of less than one year from the date of its purchase. On the aspect of colorable device 6.1. The assessee submitted that the sale price of the debenture at Rs. 61.88 was determined based on the valuation report of an independent chartered accountant, who valued the debentures at Rs. 61.88 per debenture after applying discount of 15% on the value of CCD while determining the fair market value of debentures , since ICSL is not a listed company and CCDs of that company are not traded in the open market. This was done by the independent valuer by taking shelter from the prevailing practice of applying discount upto 20% in the value of investments on account of illiquid nature which is allowed for the purpose of valuation of unlisted shares under the provisions of the Wealth tax Act. We find that the assessee had placed reliance on this independent valuation repor....
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....(E) Pro rata loss till 16.10.2011 23.02 per debenture (F) Revised Valuation ( 85-23.02) 61.98 per debenture 6.3. We find that, in any case, the revenue authorities had only disputed the reduction of 15% discount from the fair market value arrived at Rs. 72.80 per debenture based on the balance sheet as on 31.3.2011 by an independent chartered accountant to arrive at final value of Rs. 61.88 per debenture (being the sale price of debentures). We find that the revenue had not disputed the determination of fair market value of Rs. 72.80 per debenture as it is based on the audited balance sheet of ICSL as on 31.3.2011. Hence applying the broken period loss for the period upto the date of sale of debentures (i.e 16.10.2011) of Rs. 23.02 per debenture and reducing the same from the value determined by the independent chartered accountant as on 31.3.2011 of Rs. 72.80 per debenture, the revised fair market value per debenture would be Rs. 49.78 ( 72.80 - 23.02). The assessee had sold the debentures at Rs. 61.88 per debenture which is higher than the revised fair market value of Rs. 49.78 per debenture. Hence it cannot be said the transactions had been carried out by the a....
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.... incur short term capital loss , we find that the ld AR rightly placed reliance on the decision of Hon'ble Jurisdictional High Court in the case of CIT vs Pitty Bros. Private Ltd reported in 120 ITR 709 (Bom) wherein the operative portion of the said judgement is reproduced as under:- 6. Mr. Joshi took us through the close connection between the assessee-company and the tobacco company as also between the firm which has sold the shares to the assessee- company and the managing agents of the tobacco company and submitted that these facts conclusively establish that the transaction was not a normal purchase of share but one to control the tobacco company or to keep the management and control of the tobacco company in the hands of Pittie & Co. with which the assessee-company and its shareholders were closely connected. If this argument were to be accepted, it would mean that in almost every case of purchase of shares of a private limited company or a closely held company it would have to be held that the purchase was not on trading account but for different considerations. This may be one of the factors which were required to be considered but cannot by itself be a decisive f....
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....finding of fact that the amounts received by Maharana Mills from the Banks and financial institutions and from SCCIL were utilised in purchasing new machinery which was also installed and it is not the allegation of the Assessing Officer that these funds were misappropriated by the directors or were frittered away. CIT(A) have, therefore, reached a finding of fact that the guarantee given by Agrima was genuine. This finding of fact is also accepted by the Appellate Tribunal. In view of these concurrent findings of fact, we see no reason as to why we should interfere with the said finding of fact. 6. In view thereof we are of the view that except for making a bare allegation that the entire exercise of giving guarantee by Agrima to SCCIL was collusive and only to book losses on the ground that the companies have common directors and were under the same management, the revenue has failed to produce any material in support of their case that the guarantee given by Agrima was not genuine. Only because some directors were common one cannot reach to a serious conclusion that the entire transaction was collusive and colourable only to book losses. 7. In view of the above....
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....ransactions were entered into on the same date merely to create capital loss and was a colourable device for tax avoidance. 4. The Assessing Officer disallowed the capital loss on sale of shares on the ground that these shares were purchased from the funds made available by the group companies and observing that the assessee-company had entered into these transactions on the same day only to create capital loss of investment held by it. ....................... 8. As noted by the Commissioner of Income tax (Apnea's) as well as by the Income tax Appellate Tribunal, shares in question were held by the assessee-company for more than three years before they were sold. The assessee-company was very much entitled in law to sell the shares held by it at any time, which it considered to be appropriate for such sale. It is for the holder of the shares and not for the Revenue to decide, when to sell the shares held by it. The Commissioner of Income-tax (Appeals) was of the view that there was no necessity to sell the shares as the assessee itself had received back share application money or advance for shares from GGIPL/ WSIL/GDOPL and the sale proceeds were use....
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.... had contributed to the loss to assessee on sale of CCDs to Kroner Investments Ltd. 6.8. We would also like to place reliance on the decision of the Co-ordinate Bench of Kolkata Tribunal in the case of ITO vs PKS Holdings reported in (2016) 71 taxmann.com 345 dated 1.6.2016 wherein the facts of that case and operative portion are reproduced as under:- 6. The AO noticed that on 27.11.2006 the assessee sold its land and earned few crores of rupees as Profit on Sale. Immediately on receipt of the money i.e. 29/11/06 and 30/11/2006, the entire amount of sale proceed were transferred to partner or to their related concern. From 27/02/2007, the assessee started the transaction with Shilpa Stock Broker Pvt. Ltd. which ultimately led to the Derivatives Loss. The AO noticed the following peculiar features of the transactions in Derivatives which lead to the loss in question:- (1) The transaction of F&O started on 27/02/07 and ended on 31/03/07 which resulted in entire loss. (2) Each & every F&O transaction entered in these 30 days was purchased on the same day & sold on the same day. (3) Each and every transaction resulted in loss. (4) Margin ....
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....n effect to. In cases where transactions or arrangement are evidenced by written agreement/arrangement it is not possible to rewrite the agreement/arrangement. The right of the parties to enter into transactions according to their free will and choice has always been protected, the only rider being that both the professed intention and the real intention should be the same. Any transaction in which the professed intention and the intention gathered from the documentation are the same must be considered to be genuine. In the present case the AO disallowed the set off of loss in question not on the basis of any incriminating documents or bringing any adverse evidence on record, but with the observation that the transactions failed to satisfy the test of human probability and the objectives of the transactions was tax evasion. The AO did not doubt the genuineness of the transactions carried out by the Assessee which resulted in the loss. Even in the remand report filed before CIT(A), the AO accepted the veracity of the documents filed by the Assessee in support of the loss but has ignored the loss only on the ground the transactions were colourable and sham device to avoid tax payable....
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....apital losses of earlier years available with the assessee which were also carried forward to subsequent years. We also find that even if the impugned short term capital loss of Rs. 69.36 crores on sale of CCDs of ICSL to related concern is not available to the assessee , then also the net long term capital gains of Rs. 1007.40 crores would be set off with the brought forward long term and short term capital losses from earlier years. No arguments were advanced by the ld DR before us to rebut these facts with regard to the availability of brought forward capital losses of earlier years. In these circumstances, it could be safely concluded that there is absolutely no intention on the part of the assessee to evade tax by booking bogus short term capital loss on sale of CCDs to related concern. Hence the transactions carried out by the assessee cannot be construed as a colorable device. 6.10. With regard to the observation made in point no. 5 of para 38 of the ld CITA's order in respect of non-availability of brought forward losses from earlier years, we find that the appellate orders for earlier years were passed subsequent to carrying out of the transactions of purchase and sale ....